Riggio: Books Remain B&N's Focus

Barnes & Noble's strategy is to remain focused on bookselling while carefully adding extensions that appeal to its core customers such as DVDs, music, and newspapers and magazines, company CEO Steve Riggio explained to analysts at a retail conference held by Prudential Securities January 13.

Although sales in all segments increased over the holidays, books still account for about 70% of sales at the company, Riggio said, adding that B&N has no plans to add new categories to its product mix. Adding more items would "jeopardize" the B&N brand, Riggio said. "We're not going far afield," he said, noting that B&N has refrained from carrying video games even though it has experience with the product through its GameStop subsidiary. B&N has been successful, Riggio said, by catering to its primary customers, whom he identified as 45 to 65 years old.

While B&N may not want to add new categories, it will continue to grow its publishing business. Riggio explained that because publishers sell their most popular titles to mass merchandisers, B&N is "compelled" to differentiate itself from its competitors by offering proprietary product. "Every big-box retailer wants to have something that is its own," Riggio said. B&N's publishing program will represent more than 5% of total revenue for the year ending January 31, putting the figure around an estimated $200 million. B&N's goal remains to have publishing account for 10% of sales by 2008, but Riggio explained that B&N "won't step on the gas pedal to get to the higher number."

B&N's publishing efforts will be geared toward doing "low-risk books that have timeless appeal," Riggio said. The company's classic line has been a success, although he acknowledged that B&N's Law & Order title did not do particularly well. But by being the publisher of the title, B&N has the ability to lower the price until the stock is gone. Law & Order was originally priced at $24 and now is selling for $15, but with a cost of only $6 B&N has room to lower the price further and still make a profit, Riggio said.

On the subject of profits, Riggio said he expects that Barnesandnoble.com, once it is re-united with B&N, will be "modestly profitable." He noted pricing pressure has stunted the e-tailer's sales growth and "put a cap on margins." Nevertheless, he said BN.com is important to the company's multichannel strategy, and that it will be easier to align the goals of B&N and BN.com once the e-tailer is back inside B&N. He maintained that e-commerce is "critical" to any retailer's future and B&N has no intention of giving up that part of the business.

Riggio was cautious about prospects for 2004. Although the first half of 2003 was weak, the success of Hillary Clinton's Living History and Harry Potter and the Order of the Phoenix will make for difficult comparisons in June. He was also concerned that the summer Olympics and the presidential election could keep customers out of the stores for several weeks later in the year. He theorized that one reason for the poor start in 2003 was the lack of exposure given to authors as the media outlets focused on events in Iraq. He said diet and health books are the strongest sellers right now and that he was looking forward to the release of the South Beach Diet Cookbook in April. Riggio also said he expected to hear something soon about former President Bill Clinton's book. "I'm sure he'll try to outsell Hillary," he said.

Chief operating officer Mitchell Klipper told analysts that B&N plans to open at least 30 new stores annually over the next several years, noting that about 175 locations "are in the hopper for serious consideration." He said there is room for 300 to 400 more B&N stores, but that the company is not in a rush to get there. B&N is not looking to build store count, but rather find the best locations, Klipper said. International expansion, however, is out of the question. "That door is shut," Riggio said.